What does life of balance mean?

A life-of-balance interest rate on a credit card is the rate that’s applicable throughout the credit card’s life. In other words, a life-of-balance credit card will not see the rate increases of other low interest rate credit cards.

That benefit is the main difference between a credit card with a low introductory interest rate and one offerring a life-of-balance rate. The introductory interest rates will last for only a few months. They’re designed as a marketing strategy to attract customers who would not have otherwise looked at these credit cards, and this cost often proves to be less than marketing through traditional methods. However, these interest rates will not be economic for the issuing bank, and so they cannot be kept at this low rate for ever.

Some credit card holders try to extend these benefits by not using the card after the introductory period expires, instead moving on to another low interest rate card with another introductory period. This can seem to be a tempting strategy, particularly when some of these credit cards offer zero per cent interest rates for three months. But there are dangers in this strategy, as it requires a high level of organisation and discipline. It can also hurt the card holder’s credit rating as he or she will apply for a large number of credit cards in a short period of time, which is seen as a danger sign by the credit reporting agencies.

A life-of-balance credit card can be a way through this dilemma. These cards don’t bother with introductory periods, but maintain a low rate of interest through the life of the account. Credit card companies make this offer economical by not offering the optional extras, such as free insurance or rewards programs, offered by other credit cards. They also require a higher credit score threshold against default, which is one of the biggest expenses faced by credit-card issuing banks.

Life-of-balance low interest rates are a good option for people who are likely to carry a balance on their card, as it minimises the amount of interest they pay over time.